Is Procurement Muscling In On Your Turf? - Page 1

Jun 30, 2008

Robert McGarvey

Just who is that guy wearing the green eyeshade who’s crashed your recent IT technology acquisition meetings? You had better figure out who that dude is because he just may hold the purse strings.

“Procurement has been involved in IT spending for a long time, but lately it has assumed a new, bigger role,” said Scott Feuless, a senior consultant in Houston with the IT consulting firm Compass.

“We see procurement playing more and more of a part,” agrees Greg Baker, CFO at Bloomfield Hills, MI IT integrator Logicalis.

It wasn’t always so. Procurement, the formalized purchasing discipline that usually reports to the CFO, once played a confined role in IT purchasing. It used to be, relates David Robbins, head of U.S. operations for Procserve, which provides electronic marketplaces, after a vendor struck a deal with IT procurement would pop into the room, insist on a further discount of one or two percent.

In that era—up until a year or two ago—procurement was not trying to improve purchasing, it simply wanted a better deal where “better” meant cheaper, period. Towards that end procurement used standard playbook moves—vendor consolidation, for instance, where one vendor wins all of a company’s laptop business. That species of procurement is easy to understand, even to control, but nowadays procurement is becoming much more ambitious.

Right now, for example, a big procurement mission in many companies is to put a sharp halt to so-called “maverick spending,” which are purchases that fall outside the formal purchasing procedures. IT traditionally has argued that the need for speed coupled with the complexity of the purchasing decisions—“You couldn’t possibly understand why this data center solution is so much better”—won it exemption and, therefore, maverick spending has been the IT norm in many organizations.

That’s changing because money talks especially loudly in a stumbling economy. And procurement says it can generate huge savings. Case in point: Shawn Fronzaglia, Catagory Manager, IT and Telecommunications at spend-management firm Ariba, said that when he looks at a company’s spending on wireless communications, usually he can produce savings of 14% to 20%. Fronzaglia does not say every IT spending category produces similarly sized savings but he is optimistic that spend management procedures will produce savings pretty much wherever it looks at an IT budget.

That quickly turns into big buckets of dollars saved and, said Fronzaglia, it happens with no diminution of quality, reliability, or anything that matters to users. Just picture your CFO hearing that about spending in your company—and how quickly he might want to join this parade.

Procurement disciplines save money, no doubt about it, but will the IT output suffer? A chief complaint, said Feuless, is that often procurement’s involvement triggers “procurement paralysis. A lot of IT groups suffer from it,” meaning that necessary purchases just get delayed and delayed more—as procurement studies and studies more—and in a fast moving IT context delay can quickly become another word for failure.

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